I started covering markets at Forbes in the summer of 2007. Right around then a pair of Bear Stearns hedge funds imploded in the first tremors of the financial crisis, but I swear the recession isn't my fault. Armed with only a basic knowledge of Wall Street at the start, after a few thousand stories I've got a pretty good handle on this business. My contributions to the Forbes brand don't end when I leave the office either: I'm also a two-time MVP of the Forbes .400 softball team. Tips, story ideas, criticism, questions? Follow me here (click under my picture), on Twitter @SchaeferStreet, Google+, subscribe on Facebook or e-mail me at sschaefer_at_forbesdotcom.

Former Goldman Director Gupta Found Guilty Of Insider Trading

Rajat Gupta, the one-time head of consulting firm McKinsey and a former board member at Goldman Sachs Group and Procter & Gamble, was found guilty Friday of four criminal counts of securities fraud related to feeding insider information to hedge fund manager Raj Rajaratnam.

Rajaratnam, the Galleon Group founder sentenced to 11 years in prison for insider trading in October 2011, had a network of informants that enabled him to make scores in a number of publicly-traded stocks by getting out ahead of news events like earnings reports and mergers.

Gupta, convicted on four of six counts of insider trading, faces prison time when he is sentenced later this year. The Financial Timeshas the details of the verdict, and how the prosecutors established the insider trading pattern:

The records indicated that less than a minute after disconnecting from a conference call when the Goldman board approved Warren Buffett’s $5bn investment in the bank at around 3.54pm on September 23 2008, Mr Gupta dialled Mr Rajaratnam and they spoke for 30 seconds. As the clock ticked toward the close of the stock market, Mr Rajaratnam ordered his traders to buy shares of Goldman, according to testimony at trial. They made $1.2m in profits from the trades as the shares subsequently rose.

Galleon trades on the back of Gupta’s tips made the firm some $13.5 million in profits and avoided $3.8 million in losses, the FT said.

Update: Gary Naftalis, Gupta’s lawyer, made the following statement:

We are pleased that the jury acquitted Mr. Gupta on a number of significant charges, including the only charge related to Procter and Gamble. We are obviously disappointed in the jury’s verdict with regard to the other counts, which are based on the hearsay wiretaps of Mr. Rajaratnam.

We believe the facts of this case demonstrate that Mr. Gupta is innocent of all these charges, and that he has always acted with honesty and integrity. This is only Round One. We will be moving to set aside the verdict and will if necessary appeal the conviction.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.

Comments

Insider traders continues to be weird to be because the stories have great polarity . Meaning in some insider trading, people (retail investors) while in other cases they benefit from it. By nature of the beast, there’s no way to eliminate insider trading. There had to be at least 100 people at Goldman Sachs who were privy to the information of Warren Buffet investing $5 billion into the company. I’m sure many of them didn’t wait for the report to be written and released to the public to pick up a few more additional shares.

I don’t see where anyone was really hurt. A company avoided a loss and Mr. Rajaratnam made a lot of people some cash. I do so much see anything wrong with that. The share price was going up any way as soon as the info on Mr. Buffet’s investment was released and it still would have gone up if Rajaratnam had bought a billion shares. Buffet’s name on any investment make people scurry to spend dollars on stocks they haven’t even researched because it must be good if Buffet’s doing it.

I don’t like the insider trader where people get hurt by limited information or misinformation like in the case of the recent Facebook IPO. People lost money because people inside didn’t disseminate information that would make the investment a bad decision at the said price. I think that way is way more harmful to the economy, people’s trust in the economy, and people’s behavior with regard to investments and the safety of their money. In much of the Facebook case, the insiders were trying to make money off of people by screwing them over. Gupta just happened to pick up the phone and called a buddy.

Gupta’s conviction based on the information provided seems to put into the contention that old cliche of “it’s not what you know, but who you know.” Hell, business in the United States is built on insider trader. If it weren’t, 99% of the wealth wouldn’t rest with 1% of the population. Lol, sorry for being so long winded.

I don’t know where you are coming from in your response. Perhaps you believe that rules are for suckers and chumps. You clearly don’t view the world in terms of right and wrong.

I’m glad that a jury found Mr Gupta guilty of committing a serious crime! Guys like him and Mr. Rajaratnam deserve to rot in prison.

Everyone was hurt by Mr Gupta’s actions (excepting the folks at the Galleon Group)! Most of all, the credibility of the markets was threatened. I’m one of the “individual investors” who has lost credibility in Wall Street due to the actions of insiders. I won’t play in the “rigged game” that you are advocating. For people like me to return to investing in securities, I want to feel that I have a fair shot.

It’s not like I have abandoned investing. Instead, I have chosen to invest in a portfolio that includes privately held corporations and commercial real estate, where there is the opportunity for both significant gain and stable cash flow. More importantly, I feel that I’m in a position where I will succeed or fail based upon my abilities and work.

Gupta is a Sanskrit word meaning “secret”. This is a case involving secrets (“gupta” things) which were illegally disclosed.

Also, Rajaratnam means: Raja = King, Ratnam = Jewels. He could have bought lots of jewels for many Kings with that money. With his profits, he probably bought many jewels for his own family, but Ohhhhhh not the Kohinoor diamond yet.

There must be many more of his kind still lingering at large, well protected by loopholes of laws/regulations, and free to keep their loots. Some continue to play their games in smarter and more subtle ways. (ttm1943, vzc1943)